Telecommunications LawTelecommunications Law New Social Compact in an IP World Preconference Seminar on the IP World NATOA Annual Conference Orlando FL September 16, 2013 PRESENTED BY Nicholas Miller Partner, Best Best & Krieger, LLPTelecommunications Law Outline •What Principles Apply? •Some Basic Economics •The Traditional “Social Compact” in Telecommunications •Does IP Technology Change the Analysis? •The Duty for All of UsTelecommunications Law Principles for Local Governments in Electronic Communications • Consumer protection • Economic Development • Local Government as landlord/trustee • Local Government as userTelecommunications Law Consumer protection •Protection Against Market Failures ? monopoly power—unfair prices; unfair availability of services •Quality of Life of Community ? First Amendment infringements ? privacy abusesTelecommunications Law Economic Development •Fair opportunity to participate •Efficient use of community resources •Externalities injuring third parties •Retarding innovationTelecommunications Law Local Government as landlord/trustee •Largest landlord to industry •Most valuable resource held in public trustTelecommunications Law Local Government as user •Fair prices and services to reduce taxpayer burden •Provider of last resortTelecommunications Law Some Basic Economics •Government should support “efficient markets”--prices = costs + reasonable return ? i.e. no provider can charge more without attracting competitive entry to undercut prices/market share ? Test is ease of market entry ? Best evidence is not market share but “value of service” pricing: vendor has power to segment market, charging discriminatory prices based on each consumer group’s value of service :Telecommunications Law Some Basic Economics •Government should attack monopoly/oligopoly markets ?When a market demonstrates substantial barriers to entry, very injurious results • Innovation suppressed—too expensive to play • Prices above costs slows economic development—money is diverted from other activities to overpay the monopolists.Telecommunications Law The Traditional “Social Compact” in Telecommunications •Essential services must be available to all at comparable prices related to costs ? Voice telephone service subsidized where needed • Universal availability (REA loans, operating subsidies to rural providers, rate subsidies for low income households) • Universal affordability with no distance penalty • Long distance toll rate averaging within states and between states—Hawaii and AlaskaTelecommunications Law The Traditional “Social Compact” in Telecommunications •“Last Mile” local distribution networks are natural monopolies ?Must regulate to require • Non-discrimination • Equal interconnection • No control over content • Limits on monopoly pricingTelecommunications Law The traditional “Social Compact” in Telecommunications • Competition best serves consumer interests; regulation of local monopoly facilities essential to competition • Computer II: regulate transmission facilities (natural monopoly), not software and information services (competitive) • 1982 breakup of Bell System—ownership and control of local monopolies separated from competitive long distance and manufacturing businesses • 1996 Telecomm Act ? As local facilities become competitive, forbear regulation; until then, competitive carriers must have access at regulated prices ? “Information Services” (travelling over local facilities) are competitiveTelecommunications Law •Does IP Technology Change the Analysis?Telecommunications Law Short Answer: Same Principles; Problems Still Tied to Points of Monopoly Control • Social and Economic Principles Don’t Change with a Change in Technology • Technology will change “cost structures”—so monopoly power may be disrupted and relocatedTelecommunications Law Fiber and Digital Disrupts Networks • Fiber reduces cost of construction—undercutting monopoly power • Fiber costs decline with increased data volume— economy of scale enhancing monopoly power • Digitalization reduces costs of switching and allows multiple routing within network—need for nondiscrimination and interconnection • Fiber trumps wireless for capacity/speed/lower investment over timeTelecommunications Law The Social Compact: Your Homework • Recognize the goals are the same— ? Universal service • Availability • Affordability ? Non-discimination in service to subscribers and information vendors ? Non-discrimination in interconnection among carriers • Separate the propaganda from the facts— ? IP technology does not eliminate monopoly power; ? Treat monopoly facilities different than competitive servicesTelecommunications Law The Social Compact: Your Homework •Providers using 2 step strategy: ? Use fiber/coax capacity to prevent overbuilds ? Create artificial scarcity limits to drive discriminatory prices: data caps; refusal to serve “uneconomic areas” •Not an easy fight— State and Federal officials need strong political supportTelecommunications Law Questions? Nicholas Miller Partner Best Best & Krieger LLP 2000 Pennsylvania Ave NW Washington DC 20006 202 370 5309 Nicholas.miller@bbklaw.com www.bbklaw.com

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